Lucchese Boot Co. v. Arturo Licon

COURT OF APPEALS
EIGHTH DISTRICT OF TEXAS
EL PASO, TEXAS
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LUCCHESE BOOT CO., No. 08-11-00103-CV
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Appellant, Appeal from
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v. 34th District Court
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ARTURO LICON, of El Paso County, Texas
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Appellee. ' (TC # 2005-7388)
OPINION
Lucchese Boot Co. appeals from an order granting Arturo Licon’s motion to strike its
amended motion to compel arbitration. For the reasons that follow, we reverse and remand.
FACTUAL SUMMARY
On October 19, 2005, Arturo Licon filed a non-subscriber negligence suit against
Lucchese alleging he suffered an on-the-job injury in 2005. Lucchese answered filed a motion to
compel arbitration based on an arbitration agreement contained in its Arena Brands Texas Injury
Benefit Plan (the Plan). The motion to compel arbitration alleged that Licon signed an
acknowledgement on April 1, 2003 reflecting that he had received and read, or had the
opportunity to read, the highlights brochure which included a requirement that he arbitrate
disputes relating to on-the-job injuries. Licon opposed arbitration on the ground that the
arbitration agreement was illusory because Lucchese had the unilateral right to amend or
terminate the Plan without notice. The trial court granted the motion to compel arbitration. On
July 30, 2010, Licon filed a motion to reconsider the order compelling arbitration based on this
court’s decision in two cases: In Lucchese Boot Co., 324 S.W.3d 211, 214 (Tex.App.--El Paso
2010, orig. proceeding); In Lucchese, Inc., 324 S.W.3d 214, 217 (Tex.App.--El Paso 2010, orig.
proceeding). We held in those cases that Lucchese’s arbitration agreement was illusory. On
November 18, 2010, the trial court granted Licon’s motion to reconsider, vacated its prior order
compelling arbitration, and denied Lucchese’s motion to compel arbitration. On February 11,
2011, Lucchese filed an amended motion to compel arbitration based on a different arbitration
agreement signed by Licon on July 10, 2003. According to the motion and attached evidence,
Lucchese also has a Problem Resolution Plan (the Program) which contains an agreement to
arbitrate. The Program requires arbitration of all disputes between Lucchese and Licon whereas
the other arbitration agreement Licon waived the right to trial by judge or jury and agreed that all
claims covered by the Program would be arbitrated unless both parties waived the right to
arbitrate in writing prior to the initiation of any litigation. The Program defined “covered
disputes” as including tort claims for physical, mental, or psychological injury, without regard to
whether the injury was allegedly sustained in the course and scope of employment. The Program
also provided that it was governed by the Federal Arbitration Act. In his response to the
amended motion to compel arbitration, Licon argued that the trial court should strike the
amended motion and enter an order finding that Lucchese had waived its right to compel
arbitration because it had failed to exercise due diligence in presenting the issue and evidence to
the trial court. He also asserted that Lucchese should not be allowed to “reopen” because it had
not used due diligence in obtaining the evidence. Additionally, Licon relied on the doctrine of
equitable estoppel and argued that Lucchese should be estopped from filing an amended motion
to compel arbitration. After a brief hearing, the trial court granted Licon’s motion to strike.
Lucchese filed notice of accelerated appeal from the interlocutory order. In its brief, Lucchese
has included an alternative petition for writ of mandamus in the event we determine that we lack
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jurisdiction of the interlocutory appeal. We will address the jurisdictional issue first.
JURISDICTION OF THE INTERLOCUTORY APPEAL
Appellate courts generally have jurisdiction over final judgments, and such interlocutory
orders as the Legislature deems appealable by statute. Hernandez v. Department of Family and
Protective Services, --- S.W.3d ----, 2012 WL 1647984 at *1 (Tex.App.-- El Paso 2012, no pet.
h.); see TEX.CIV.PRAC.&REM.CODE ANN. § 51.012 and § 51.014 (West Supp. 2011). We
strictly apply statutes authorizing interlocutory appeals because they are a narrow exception to
the general rule that interlocutory orders are not immediately appealable. CMH Homes v. Perez,
340 S.W.3d 444, 447-48 (Tex. 2011).
Relying on Section 51.016 of the Civil Practice and Remedies Code and Section 16 of the
FAA, Lucchese asserts that we have jurisdiction of this appeal because the trial court’s order
striking the amended motion to compel arbitration effectively denied the motion. Section 51.016
provides, in relevant part, that in a matter subject to the Federal Arbitration Act,1 a person may
take an appeal to the court of appeals from an interlocutory order of a district court under the
same circumstances that an appeal from a federal district court’s order or decision would be
permitted by 9 U.S.C. § 16. TEX.CIV.PRAC.&REM.CODE ANN. § 51.016. The Program
expressly provides that it is adopted pursuant to and is governed by the Federal Arbitration Act.
Parties may expressly agree to arbitrate under the FAA. In re Rubiola, 334 S.W.3d 220, 223
(Tex. 2011).
The United States Supreme Court stated in Green Tree Financial Corporation v.
Randolph that the FAA generally permits immediate appeal of orders hostile to arbitration but
bars appeal of interlocutory orders favorable to arbitration. Green Tree Financial Corp. v.
Randolph, 531 U.S. 79, 86, 121 S. Ct. 513, 148 L. Ed. 2d 373 (2000); In re Gulf Exploration, LLC,
1
9 U.S.C.A. §§ 1-16 (West 2009).
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289 S.W.3d 836, 839 (Tex. 2009). Section 16 of the FAA specifies the types of orders which
may be appealed. 9 U.S.C.A. § 16(a)(1)(C)(West 2009). An appeal may be taken from:
(1) an order--
(A) refusing a stay of any action under section 3 of this title,
(B) denying a petition under section 4 of this title to order arbitration to
proceed,
(C) denying an application under section 206 of this title to compel
arbitration,
(D) confirming or denying confirmation of an award or partial award, or
(E) modifying, correcting, or vacating an award;
(2) an interlocutory order granting, continuing, or modifying an injunction against
an arbitration that is subject to this title; or
(3) a final decision with respect to an arbitration that is subject to this title.
We strictly apply statutes authorizing interlocutory appeals. See Texas La Fiesta Auto Sales,
LLC v. Belk, 349 S.W.3d 872, 878 (Tex.App.--Houston [14th Dist.] 2011, no pet.). The
substance and function of the order being appealed controls our interlocutory jurisdiction. Id.
Licon argues that we lack jurisdiction of this appeal because Lucchese’s amended motion
to compel arbitration is actually a motion to reconsider the trial court’s prior ruling. Appellate
courts have held that while Section 51.016 and Section 16 of the FAA permit an appeal from an
order refusing to compel arbitration, it does not provide for an appeal from an order denying a
motion to reconsider. See Wells Fargo Bank, N.A. v. Goldberg, No. 09-10-00386-CV, 2011 WL
662952 at *2 (Tex.App.--Beaumont Feb. 24, 2011, no pet.)(dismissing appeal from denial of
motion to reconsider an order denying motion to compel arbitration); Nabors Well Services
Company v. Aviles, No. 06-10-00018-CV, 2010 WL 2680087 (Tex.App.--Texarkana 2010, no
pet.)(dismissing appeal from denial of amended motion to compel arbitration because the
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amended motion was not a new motion but was in substance a motion to reconsider the prior
ruling); Hydro Management Systems, LLC v. Jalin, Ltd., No. 04-09-00813-CV, 2010 WL
1817813 (Tex.App.--San Antonio 2010, no pet.)(holding that Section 16 of the FAA permits an
appeal from an order denying a motion to compel arbitration but not from an order denying a
motion to reconsider, and therefore, order denying motion to reconsider was not independently
appealable).
The instant case is distinguishable because Lucchese based its amended motion to compel
arbitration on an arbitration agreement which had not previously been offered as a basis for its
motion to compel arbitration. It is not merely a different version of the Plan’s arbitration
agreement. It is a separate and distinct agreement which stands on its own. Thus, Lucchese did
not ask the trial court to reconsider its prior ruling. It instead moved the trial court to compel
arbitration based on a different agreement. Thus, the amended motion included “new matter.”
See TEX.R.CIV.P. 62 (defining the object of an amendment of a pleading to include pleading
new matter, in addition to that formerly pleaded).
Licon next complains that we do not have jurisdiction of this appeal because the trial
court did not rule on Lucchese’s amended motion to compel arbitration and the FAA does not
authorize an appeal from an order striking a motion to compel arbitration. This argument
presents a difficult question. On the one hand, the record does not reflect that the court
conducted a hearing on the merits of the amended motion to compel arbitration nor does it show
that the court expressly or even impliedly ruled on that motion. Instead, the trial court conducted
a hearing on Licon’s motion to strike and the court ruled on that motion. The parties did not
present any evidence or make arguments related to the merits of Lucchese’s amended motion to
compel arbitration. On the other hand, the effect of the trial court’s order is to permanently
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foreclose arbitration. One of the arguments relied on by Licon is that Lucchese waived its right
to arbitrate. Waiver is a ground utilized by plaintiffs to avoid arbitration. See e.g., EZ Pawn
Corp. v. Mancias, 934 S.W.2d 87 (Tex. 1996). We conclude that the trial court’s order striking
the amended motion to compel arbitration is the functional equivalent of an order denying the
motion. Accordingly, we conclude that we have jurisdiction to review this interlocutory order by
virtue of Section 51.016 and Section 16(a)(1)(C) of the FAA.
Even if we are incorrect in our resolution of the jurisdiction issue, we would not dismiss
the appeal but would review the issues raised by Lucchese under the mandamus standard of
review because Lucchese requested that we treat its brief as a mandamus petition in the event we
find that we do not have jurisdiction to review the interlocutory order. See CMH Homes v.
Perez, 340 S.W.3d 444, 452 (Tex. 2011)(impermissible interlocutory appeal from order
appointing an arbitrator would be considered as a petition for writ of mandamus, where seller
invoked the court of appeals’ appellate jurisdiction by specifically requesting that its appeal be
treated as a mandamus petition). We would review the issues for a clear abuse of discretion. See
In re Prudential Insurance Company of America, 148 S.W.3d 124, 135 (Tex. 2004).
AUTHORITY TO STRIKE LUCCHESE’S
AMENDED MOTION TO COMPEL ARBITRATION
Lucchese argues in its sole issue that the trial court abused its discretion by striking its
amended motion to compel arbitration and by refusing to compel arbitration. Given that the trial
court did not consider the merits of Lucchese’s motion to compel arbitration, we will not address
the latter argument but will instead restrict our review to the trial court’s decision to strike
Lucchese’s motion to compel arbitration.
Standard of Review
Under the abuse of discretion standard, an appellate court may reverse the trial court’s
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ruling only if the trial court acted without reference to any guiding rules and principles, such that
its ruling was arbitrary or unreasonable. Low v. Henry, 221 S.W.3d 609, 614 (Tex. 2007). When
undertaking this review, we may not substitute our judgment for that of the trial court with
respect to resolution of factual issues or matters committed to the trial court’s discretion. See
Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992)(orig. proceeding); see also Downer v.
Aquamarine Operators, Inc., 701 S.W.2d 238, 242 (Tex. 1985). While a trial court does not
abuse its discretion merely because it decides a discretionary matter differently from an appellate
court, a trial court has no discretion in determining the law or its application. Walker, 827
S.W.2d at 840. A clear failure by the trial court to analyze or apply the law correctly will
constitute an abuse of discretion. Walker, 827 S.W.2d at 840.
Authority to Strike Pleadings
Lucchese contends that the trial court did not have authority to strike its amended motion
to compel arbitration. Under the Rules of Civil Procedure, courts are authorized to strike a
party’s pleadings in a limited variety of situations. For example, a court is required to strike a
party’s pleadings under TEX.R.CIV.P. 12 if an attorney fails to show sufficient authority to
prosecute or defend a suit on behalf of a party and no person who is authorized to prosecute or
defend appears. A court may strike a groundless and false pleading. TEX.R.CIV.P. 13. A court
is also authorized to strike a third party claim. TEX.R.CIV.P. 38(a). A plea in intervention is
subject to being stricken by the court for sufficient cause on the motion of any party.
TEX.R.CIV.P. 60. As another example, a court may strike a pleading filed after a deadline
imposed by a pre-trial order. See TEX.R.CIV.P. 166(p). The Rules of Civil Procedure also
authorize trial courts to sanction a party for failure to comply with a discovery request by striking
pleadings or by entering an order refusing to allow the disobedient party from supporting
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designated claims or defenses, or prohibiting him from introducing designated matters in
evidence. TEX.R.CIV.P. 215.2(b)(5).
Licon argued that the court should strike Lucchese’s amended motion to compel
arbitration and refuse to consider the evidence attached to the amended motion on the grounds
that:
1) Lucchese waived its right to assert the new grounds alleged in his amended motion to
compel arbitration;
2) Lucchese did not exercise due diligence in presenting new arguments and evidence, and
therefore, the court should not permit Lucchese to “reopen” the arbitration issue; and
3) Lucchese is estopped from reopening the arbitration issue.
We will address these arguments in order.
Waiver
Licon argued in his motion to strike that Lucchese waived its right to compel arbitration
under the Program’s arbitration agreement because it did not present that argument or the
evidence to the trial court in the first motion to compel arbitration. The Texas Supreme Court
rejected a similar argument in In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 68 (Tex.
2005). In that case, the defendant filed a motion to compel arbitration based only on the Texas
Arbitration Act and later filed a motion to reconsider based on new grounds under the Federal
Arbitration Act. The Court held that the defendant did not waive its right and was not estopped
from seeking to compel arbitration. Id. Here, Lucchese first moved to compel arbitration under
the Injury Benefit Plan’s arbitration agreement and later moved to compel arbitration based on a
new ground, namely, the Problem Resolution Program’s arbitration agreement. We conclude
that Lucchese did not waive its right to arbitrate by not raising both grounds for arbitration in the
original motion to compel arbitration.
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In the arbitration context, a party waives its right to compel arbitration by substantially
invoking the judicial process to the other party’s detriment or prejudice. In re Fleetwood Homes
of Texas, L.P., 257 S.W.3d 692, 694 (Tex. 2008)(orig. proceeding); In re ReadyOne Industries,
Inc., 294 S.W.3d 764, 772 (Tex.App.--El Paso 2009, orig. proceeding). There is a strong
presumption against waiver of arbitration. In re Bruce Terminix Co., 988 S.W.2d 702, 704 (Tex.
1998)(orig. proceeding). Waiver is a legal question for the court based on the totality of the
circumstances, and asks whether a party has substantially invoked the judicial process to an
opponent’s detriment, the latter term meaning inherent unfairness caused by “a party’s attempt to
have it both ways by switching between litigation and arbitration to its own advantage.” In re
ReadyOne, 294 S.W.3d at 772, quoting Perry Homes v. Cull, 258 S.W.3d 580, 597 (Tex. 2008).
Waiver must be decided on a case-by-case basis, and courts should look to the totality of the
circumstances involved. In re ReadyOne, 294 S.W.3d at 772. We consider factors such as when
the movant knew of the arbitration clause, how much discovery has been conducted, who
initiated it, whether it related to the merits rather than arbitrability or standing, how much of it
would be useful in arbitration, and whether the movant sought judgment on the merits. Perry
Homes, 258 S.W.3d at 591-92; In re ReadyOne, 294 S.W.3d at 772.
There has been no showing that Lucchese substantially invoked the judicial process or
that Lucchese has switched between litigation and arbitration to its own advantage. Licon filed
suit on October 19, 2005 and Lucchese raised arbitration in its amended answer filed on January
24, 2006. Lucchese waited thirteen months before it filed a motion to compel arbitration. Licon
argued in his response to the motion to compel that Lucchese had waived its right to arbitrate by
substantially invoking the judicial process during this time period. He alleged that Lucchese had
answered discovery, engaged in its own discovery, and filed a motion to compel discovery and
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for sanctions. In support of this argument, Licon attached a computer-generated document
showing the “events and orders” related to the case. The document does not provide any details
but does show that Lucchese filed interrogatories and a motion to compel discovery and for
sanctions. By granting Lucchese’s motion on May 23, 2007 without specifying the basis for the
ruling, the trial court impliedly found that Licon had failed to carry his burden of proving that
Lucchese had substantially invoked the judicial process. On July 30, 2010, Licon filed a motion
to reconsider the order compelling arbitration based on our decisions in the two mandamus cited
above. On November 18, 2010, the trial court granted Licon’s motion to reconsider, vacated its
prior order compelling arbitration, and denied Lucchese’s motion to compel arbitration.
Lucchese filed its amended motion to compel arbitration on February 11, 2011. There is no
evidence that Lucchese substantially invoked the judicial process prior to the time the trial court
granted the first motion to compel arbitration or after the court vacated that order. Further, Licon
failed to prove prejudice. See In re ReadyOne, 294 S.W.3d at 772-73 (holding that employer did
not substantially invoke the judicial process by completing extensive discovery because
employed had invoked right to arbitrate from the beginning of litigation and there was no
showing of prejudice). Licon’s waiver argument does not support the trial court’s ruling.
Reopening the Evidence
Licon’s motion to strike also asserted that Lucchese could not “reopen” the arbitration
issue and introduce new evidence because it had not exercised due diligence in obtaining the new
evidence. Licon relied on TEX.R.CIV.P. 270 and AXA Financial, Inc. v. Roberts, No. 08-07-
00079-CV, 2007 WL 2403210 (Tex.App.--Austin 2007, orig. proceeding) to support this
contention. Rule 270 provides that:
When it clearly appears to be necessary to the due administration of justice, the
court may permit additional evidence to be offered at any time; provided that in a
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jury case no evidence on a controversial matter shall be received after the verdict
of the jury.
Rule 270 is one of nine rules found in the section of the Rules of Civil Procedure addressing the
conduct of trial. See TEX.R.CIV.P. 263 (providing for trial on agreed statement of facts);
TEX.R.CIV.P. 264 (providing for all testimony and evidence to be presented by videotape);
TEX.R.CIV.P. 265 (setting the order of proceedings on trial by jury); TEX.R.CIV.P. 266
(plaintiff has the right to open and close both evidence and argument unless the defendant has the
burden of proof); TEX.R.CIV.P. 267 (witnesses placed under the “Rule”); TEX.R.CIV.P. 268
(motion for instructed verdict); TEX.R.CIV.P. 269 (addressing closing argument).
In AXA Financial, a Chapter 7 bankruptcy trustee filed suit against several defendants on
behalf of the bankruptcy estate of Kent Abney. The claims arose out of Abney’s association and
employment relationship with the defendants. The defendants filed a motion to compel
arbitration before the National Association of Securities Dealers based upon a Uniform
Application for Securities Industry Registration or Transfer (“Form U-4”) executed by Abney in
1987. The defendants did not include the 1987 Form U-4 as evidence in support of their motion,
but they attached an amended U-4 signed in 2005. When Abney signed the 2005 U-4, he
expressly refused to consent to pre-dispute arbitration and reserved his right to file suit. Prior to
the hearing, the parties entered into a Rule 11 agreement whereby the defendants agreed to limit
their evidence to that attached to the motion to compel. The trial court subsequently denied the
motion to compel arbitration with prejudice based upon a finding that the defendants had not
carried its burden to establish a valid agreement to arbitrate the disputed claims. The defendants
filed a motion to reconsider and attached Form U-4s allegedly signed by Abney in 1989, 1994,
and 2003. The U-4s contained language that Abney had agreed to arbitrate any dispute with his
firm. The trial court denied the motion to reconsider.
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The defendants appealed under the Texas Arbitration Act and filed a mandamus petition
under the FAA. The Austin Court of Appeals dismissed the appeal for want of jurisdiction
because the notice of appeal was untimely, but the court addressed the issues raised in the
mandamus petition. AXA Financial, 2007 WL 2403210 at *3-4. The Court of Appeals
concluded that the documents attached to the motion to compel arbitration did not support
compelling Abney to arbitrate his claims. Id. at *6. With respect the motion to reconsider, the
Court noted that the defendants attached new evidence but did not raise any new ground for
compelling arbitration. Id. at *6. The defendants cited Rule 270 in support of their argument
that the additional evidence was properly before the trial court, but the Court of Appeals held
that the defendants had not shown due diligence in obtaining the evidence. Id. at *7.
Additionally, the Court held that the trial court did not abuse its discretion by denying the motion
to reconsider because the Rule 11 Agreement limited the defendants to the evidence attached to
its motion to compel. Id. at *7-8.
AXA Financial is the only case we have found applying Rule 270 to a court’s ruling on a
motion to compel arbitration and the Court of Appeals did so in direct response to the relators’
argument based on the rule. Given that a court’s ruling on a motion to compel arbitration is a
pre-trial matter, we conclude that Rule 270 is inapplicable. We decline to follow AXA Financial.
The trial court abused its discretion by impliedly finding that Lucchese could not “re-open” the
arbitration issue based on Rule 270.
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Doctrine of Equitable Estoppel
Licon also alleged that Lucchese was estopped from filing an amended motion to compel
arbitration because Lucchese had failed to disclose the Program’s arbitration agreement in
response to his written discovery requests and had failed to include the evidence in its original
motion to compel. The doctrine of equitable estoppel requires (1) a false representation or
concealment of material facts; (2) made with knowledge, actual or constructive, of those facts;
(3) with the intention that it should be acted on; (4) to a party without knowledge or means of
obtaining knowledge of the facts; (5) who detrimentally relies on the representation. Johnson &
Higgins of Texas, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 515-16 (Tex. 1998);
Enchilada’s Northwest, Inc. v. L & S Rental Properties, 320 S.W.3d 359, 365 (Tex.App.--El
Paso 2010, no pet.). We understand Licon to argue that Lucchese’s failure to produce the
Program’s arbitration agreement at an earlier date and in response to discovery requests
constituted concealment of material facts. Licon failed to prove that Lucchese intended for him
to act on the concealment, he had no knowledge of the existence of the Program’s arbitration
agreement and no means to obtain knowledge of the fact, or he detrimentally relied on the
representation. Consequently, the trial court’s order cannot be supported by a finding of
equitable estoppel.
Discovery Sanction
Licon’s counsel stated on the record in the trial court that Lucchese failed to produce the
Program arbitration agreement in response to discovery requests. But Licon did not make any
request that the trial court strike the amended motion or issue an order refusing to allow
Lucchese to support its amended motion to compel arbitration with the evidence as a sanction for
failure to comply with a discovery request. See TEX.R.CIV.P. 215.2(b)(4), (b)(5). Appellate
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counsel has repeated these assertions and urges that the trial court could have exercised its
discretion not to reconsider the arbitration issue because, Lucchese failed to “explain how Hilda
Matthews could testify such ‘new’ evidence was ‘kept in the regular course of business’ of
Lucchese, yet was not produced or disclosed during discovery on the arbitration issue.” To the
extent Licon’s brief can be read as arguing that the trial court struck the amended motion as a
discovery sanction under Rule 215.2(b), we conclude that he did not present this specific
argument to the trial court for a ruling. Consequently, it is not a basis for upholding the trial
court’s order.2
None of the arguments made by Licon supports the trial court’s order striking the
amended motion to compel arbitration. Accordingly, we conclude that the trial court abused its
discretion by granting the motion to strike. If we reviewed this issue under the mandamus
standard, we would find that the trial court clearly abused its discretion. Issue One is sustained.
We reverse the trial court’s order striking the amended motion to compel arbitration and remand
the cause to the trial court for proceedings consistent with this opinion.
June 27, 2012 ________________________________________________
ANN CRAWFORD McCLURE, Chief Justice
Before McClure, C.J., Rivera, and Antcliff, JJ.
2
In the event Licon raises the discovery sanction issue on remand to the trial court, our opinion should not be read
as expressing any opinion on the merits of that issue.
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